The auto industry has gone through an amazing dotcom, roller-coaster ride. The stock-price crash of dotcom companies is profoundly changing the auto business. It’s impacting both the auto industry’s approach to information technology (I.T.) as well as its core business strategies.

Barreling into the auto industry like a Mack Truck, the dotcom phenomenon has been controversial and disruptive from the start. It instills considerable fear and trepidation in some. To others it is a Godsend. The sharp stock-price decline in dotcom companies, not surprisingly, has been greeted with either despair or happiness, depending on who one talks to in the industry.

This polarization of responses is found in original equipment manufacturers (OEMs), auto suppliers and I.T. vendors alike. Let’s break this down, starting with a look at those most unhappy with the dotcom decline.

A small cadre in OEM firms is not pleased with the dotcom setback. These people include those most anxious to revolutionize the basic, auto industry business model. The dotcom phenomenon added considerable heft to those wishing to jettison the industry’s traditional, make-to-stock approach. They aspired to replace it with the Dell model, the make-to-order model; dotcom companies were viewed as powerful allies in this campaign.

Similarly, those wishing to introduce factory-direct sales to consumers were also spurred on by deep-pocket dotcom companies. Another group, those pressing for dramatic acceleration of the vehicle-order-to-delivery process, liked dotcom companies. They saw those firms as partners for quickly optimizing the supply-chain.

In the fierce competition with overseas rivals, all U.S.-based companies have had a potential advantage if they could exploit Internet-based innovations. This is due to the Internet industry still being predominantly an American phenomenon. The U.S. auto industry, in particular, had an opportunity for changing the rules of competition. This was possible if it succeeded in imposing new business models that relied heavily on Internet technologies. That structural change can still happen, although progress will be much slower without Wall Street pumping tens of billions of dollars into dotcom companies.

Another group bemoaning the dotcom decline are procurement managers. Some had hoped for major cost savings in purchased parts. This was to be achieved by trading exchange software and services supplied by dotcom companies.

Lastly, OEM investments in dotcom companies were expected to produce major financial windfalls for the OEMs. One stunning example is in the steel industry. There, an old-line steel maker, Weirton Steel, invested $3 million in MetalSite; one year later it sold its stake for $200 million.

In the I.T. industry, certainly the most unhappy group is the dotcom startup companies themselves. Most had business models overwhelmingly predicated on ever-rising stock prices. Easy access to Wall Street cash allowed dotcom companies to give away software and services in many cases. This enabled them to “buy” market share today with the expectation that profits would come later.

In recruitment, dotcom companies relied excessively on stock options as the primary lure for landing top talent. Retaining employees likewise rode on the dotcoms maintaining stratospheric, stock-price increases. A key threshold here is that the stock price stays above an employee’s strike price. When it dips below this point the stock option becomes worthless (at least temporarily). Dreams of becoming a millionaire quickly fade as the stock price plunges.

Another group hurt by the precipitous dotcom decline includes the Web-infrastructure suppliers. The affected Web-infrastructure suppliers cover the spectrum. These include the biggest names in industry such as hardware makers Cisco and Sun Microsystems, as well as service providers such as UUnet, the backbone provider. Dotcom companies are voracious consumers of Web servers—routers and the like. When pummeled on Wall Street, dotcom companies will certainly scale back their infrastructure purchases.

So who’s happy about the decline of dotcom companies? A disparate group, including a variety of OEM managers, Toyota, dealers, suppliers, and old-line I.T. companies. In the OEM ranks, many mid-level managers are breathing a sigh of relief. This group knows the old rules of the game and delights at returning to “business as usual.” They had not the slightest interest in learning a whole new paradigm—especially if they were also charged with doing some of the invention themselves.

Furthermore, Internet technology reinforced breathtaking thinking such as aspiring for a “10-day car.” Such breakthroughs could occur only through wholesale reductions in redundant practices and job positions. Eliminated would be many planning jobs and other superfluous functions that are part and parcel of the OEMs’ current, bloated way of doing business.

A jubilant Toyota must also be gloating over the decline of dotcom companies. Its supremacy in the auto industry is more solidly entrenched than ever because of the greatly diminished dotcom threat. That threat was to change the rules of game away from Toyota’s industry-leading strengths at producing nearly perfect vehicles with extreme efficiency. Now the U.S. auto industry is back in the unenviable position of playing catch-up again, chasing a Toyota that seems perennially in front of the pack.

Another group breathing a sigh of relief includes dealers. Most of them viewed dotcom companies like Carsdirect.com as barbarians at the gate. Flush with cash and without the traditional dealers’ high overhead, dotcom retailers represented a bona fide, major threat to the franchise-dealer system of retailing.

Most auto suppliers likewise feel a sense of relief at the dotcom setback. For instance, many felt threatened by a Big Three buying “cartel.” To some suppliers it sounded like nothing more than another means for OEMs to cut the razor-thin profits of suppliers even more.

Even in the I.T. industry there are some big, established vendors delighted at the weakening of dotcom companies. These include IBMand SAP. They were unable to offer fat stock options to recruit new hires. The old-line companies had also been hemorrhaging key employees to dotcom companies. A conspicuous example at the highest levels was Ellen Hancock leaving IBM to head up a Web-hosting company, Exodus Communications.

In addition, the old-line I.T. vendors could not offer lucrative equity stakes to customers to close deals as dotcom companies routinely did. Lastly, the old-line I.T. companies needed quarterly profits; hence, they could not give away product or services as dotcom companies did to under price the old-line I.T. vendors.

In summary, the dotcom movement has clearly passed into a new stage. The torrid pace of innovation and change will surely subside. Wall Street dollars will no longer hyper-fuel the development of Internet businesses and technologies. I.T. costs will rise as customers, not investors, bear the true research and development costs.

Because there is an overpopulation of startup companies, a consolidation among them will occur. Meanwhile, the auto industry will likely wait in the wings for the chaos to subside. Auto suppliers, in particular, are in pause mode waiting for the emergence of a dominant I.T. vendor. This “800-pound gorilla” will impose industry standards and give a manufacturer a sense of stability and security. The dominant vendor will dictate common protocols for trading-exchange hubs.

Although the heady days of upstart dotcom companies brazenly challenging the status quo are giving way to more prosaic times, hopefully some of the innovative, fresh thinking of these dotcom companies will continue to find expression in the auto industry.

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